Court Pulls Plug on NJ’s Plan to Build New Natural-Gas Power Plants

Three-judge panel rules New Jersey program ventures into territory reserved for federal government

Yet again, a court has struck down New Jersey’s efforts to develop new natural-gas power plants in the state -- a strategy relying on extensive subsidies from utility customers to spur developers.

In a ruling handed down last Thursday by the U.S. Court of Appeals for the Third Circuit, a three-judge panel said New Jersey’s program ventures into an area reserved exclusively for the federal government.

The Christie administration enacted the program early in 2011, signing a bill that cleared both houses of the Legislature with bipartisan support. Backers said it would promote greater reliability in providing power to customers and lower steep electricity prices -- even with ratepayers on the hook for up to $2 billion in subsidies over 15 years.

The state effort, dubbed the Long-Term Capacity Pilot Program, was bitterly opposed by incumbent power suppliers who quickly challenged it in the courts and before the Federal Energy Regulatory Commission, which also came out against the proposal.

In adopting the program, state officials said the current system of deciding where new power plants are built favors incumbent suppliers to such an extent it precludes new generating units from entering the market. The result: existing power suppliers reap huge profits for providing capacity at times of peak demand, with consumers footing the bill.

The Christie administration touted the plan as one of its most significant energy policy goals, leading to the construction of nearly 2,000 megawatts of new generation.

In its 31-page decision, the court found the New Jersey program was preempted by federal regulatory and statutory law. “By legislating capacity prices, New Jersey has intruded into an area reserved exclusively for the federal government,’’ the decision said.

In its decision, however, the court suggested that states still have a role to play in the energy sector. “Unless and until Congress determines otherwise, the states maintain a regulatory role in the nation’s electricity energy market,’’ the court said.

Paul Patterson, an analyst with Glenrock Associates in New York City, said the court suggests New Jersey and other states may hand out subsidies to spur new generation, provided it does not impact wholesale power prices.

“My biggest takeaway is, if New Jersey had gone about in a different way, they may have not run afoul of the jurisdiction issue,’’ Patterson said.

A spokesman for the New Jersey Board of Public Utilities, which developed the framework of the program, said the agency is reviewing the decision with its counsel and declined further comment.

The decision was welcomed by existing power supplies.

“It was a bad idea to begin with,” said Glen Thomas, president of PJM Providers Group, a coalition of power suppliers. “This court decision saves ratepayers from higher prices and bad public policies.”

Thomas noted new power plants are being built in New Jersey, including two companies that went ahead with their projects even with questions about whether they ever would be allowed to collect subsidies. Another new natural-gas plant opened in West Deptford Township in South Jersey, also without subsidies.

PSEG Power, one of the biggest power suppliers in the region, also welcomed the decision.

“We’re pleased that the Third Circuit Court has reaffirmed the previous ruling in favor of wholesale competitive electricity markets,’’ said Michael Jennings, a spokesman for the company.

Most business groups in the state backed the program, saying it could reduce energy costs, but environmentalists opposed the law. They objected to handing out ratepayers’ subsidies to promote new fossil-fuel generation.